The First Vice President and Minister of Economy, Nadia Calviño, defended in the Council of Ministers on Tuesday that the extraordinary financing conditions of recent years have allowed the Public Treasury to extend the average maturity of the debt —above 8 years— and protect it from the increases in official interest rates that the European Central Bank (ECB) will initiate this month, from the historical low of 0%, to stop feeding runaway inflation.
Looking for a substitute for the ECB: Spain has to find someone to buy 100,000 million of debt
After years of cheap debt, Spain only has to refinance more expensive 15% of all public debt in circulation this 2022. Of course, from this July 1, it has to do it without the support of the ECB —or at least with a lower support—, just as it happens with the issuance of new debtafter years in which the Treasury has managed to reduce costs to historical lows, thanks precisely to the debt purchase programs of the institution chaired by Christine Lagarde.
Some tools to promote economic recovery that ended in June and that now the ECB itself tries to reinvent so as not to drown the most over-indebted countries in the eurozone, including Italy and Spain, without continuing to feed the monster of inflation. And with the risk, unfortunately, of provoking a recession if the tightening of financing conditions - also of loans and mortgages - deepens the slowdown that economic activity is already suffering and in the problems that families are going through due to price increases and the uncertainty due to the Russian invasion of Ukraine.
“The effort made by the Treasury to extend the average life of the debt has made it possible to anchor the low interest rates in the portfolio for a longer time and reduce the percentage of debt maturing in the coming years, the result of prudent management that places the Treasury in good condition compared to the normalization of monetary policy”, explains Nadia Calviño.
Cost at historic lows
“Last year, the Public Treasury maintained its good access to capital markets and its ability to finance in good conditions the additional spending derived from the response to the pandemic and its effects, both from the Central Administration and from the autonomous communities” continues the minister.
These good conditions allowed the Treasury to finance itself in 2021 at the lowest costs in its history, with a cost of the debt issued during the year that was negative for the first time, -0.04%, and with a cost of the whole of the debt that continued to fall to 1.64% (see graph).
"In 2022 the financing conditions are changing due to the progressive normalization of monetary policy being carried out by the European Central Bank," admits Nadia Calviño.
“In this context of the increase in sovereign yields that is taking place in Europe, the Public Treasury maintains a prudent, flexible and balanced financing strategy that allows it to maintain solid access to capital markets and strong demand from investors. investors. As proof of this, as of June 30, 61% of all the medium and long-term financing planned for 2022 has already been covered and the downward trend in the average cost of the portfolio has continued, which currently stands at 1. 59%, lower than at the end of 2021”, he adds.
This has allowed the financial burden of the Spanish debt on GDP and on income to have been continuously reduced since 2013, when it reached its all-time highs (see graph).
At the end of 2021, the cost of interest on Spanish debt over GDP fell to 2.15%, a level similar to what we were at the beginning of 2011, the maximum being 3.6%, which was reached in 2013 Likewise, the cost of interest on debt over income fell to 5%, a level similar to what we were at the beginning of 2009, with a maximum of 9.2%, reached in 2013. Thanks to the extension of the average life of the debt and the prudent financing policy of the Treasury, the interest that Spain pays on its debt as a percentage of GDP will remain at contained levels that guarantee the sustainability of the debt.
"Likewise, the Government's firm commitment to fiscal responsibility and the path already begun in 2021 of reducing the deficit and public debt over GDP, which will continue in the coming years, will allow us to continue underpinning the sustainability of our public accounts," he concludes. the economic vice president.
money from north to south
The ECB will classify eurozone countries as donors (Germany, the Netherlands, and France), neutrals, and recipients (Spain, Italy, Portugal and Greece) as the starting point of the new era without bond purchase programs, which officially ended on Thursday, June 30, after having guaranteed demand for the region's public debt for yearseven in the worst moments of the pandemic.
According to this scheme, that advanced exclusively Reuters last week, since July 1, it buys debt from "these recipients" with the income from the maturities of the bonds of "the donors" that it has been acquiring since 2015, to prevent the financing conditions of the first. That is, to prevent risk premiums from rising —the difference between the interest required on the reference bond of Spain, Italy or Portugal and that of Germany, which is considered the best paying and most fiscally disciplined partner—.
In this way will transfer the money you have created in this time from north to south —of course, it will also buy debt from the latter with the maturities of its own bonds—, and will meet its objective of tightening financing conditions across the board to stop feeding runaway inflation without harming Spain, Italy, Portugal and Greece, the most over-indebted countries and hardest hit by the COVID crisis. It would be the anti-fragmentation tool that the ECB itself had advanced in recent weeks, and that has relaxed the risk premium in recent years, from 140 basis points on June 14 to close to 100.